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The commencement of commercial harvesting is an important milestone for the company. In a practical manner we have demonstrated that we have the competencies to manage the important process of harvesting at a yield which provides profit for shareholders. That experience has enabled us to gauge our future needs as available harvest volumes increase in the near-term. The company has successfully rearranged its funding lines on advantageous terms during a period of cyclical lows. The resultant structure provides us with capacity to extend our forest investments and we are confident of our ability to invest wisely. The international trends for timber-related products have recovered much more quickly than was anticipated 12 months ago. The substantial forest acquisitions by major international investors in Australasia have been fully priced. Evergreen's ability to access mature forests to achieve early cash flows is starting to become a reality and our optimism has been enhanced by evidence of the emergence of new markets and stronger performance in traditional markets for New Zealand radiata pine.
Land and Forest Holdings
Land and Forest Holdings
Operations The company has continued to invest in the development of its existing forests which now total 18,192 net stocked hectares. Harvesting commenced in the company's Northland forests in September 1998. Production of 82,337m3 generated sales of $8.267 million. In addition, $0.272 million was received from the salvage of a small area affected by wind on the West Coast of the South Island. The company's decision to moderate its production during the Asian downturn means that it has substantial reserves of mature and semi-mature standing timber (see Harvest Profile). As a consequence, production can be increased to take advantage of market conditions which are expected to improve over the next few years. A significant proportion of future harvest will be high value pruned logs (see charts).
Harvest profile (Clearfall volume) 1999 – 2010
Source: 1999 valuation reports. Figures include share of Nuhaka harvest.
Evergreen manages its plantations for maximum investment return on each growing site. In most cases, stands are managed under an intensive clearwood regime which involves multiple lift pruning and thinning to produce high quality knot-free clearwood on the lower section of the trunk of each tree. Pruning of radiata pine involves the removal of the lower branches from the tree at a young age to produce clearwood on the outer portion of the trunk. Clearwood is used in the manufacture of defect-free veneer and for high value appearance grade lumber products. The proportion of clearwood in the stem is dependent on the size of the central knotty core and the diameter of the stem at the time of harvest. These variables can be influenced by the timing of thinning and pruning operations and harvest age.
Forest Valuation The company engaged Jaakko Pöyry Consulting (Asia-Pacific) Limited ("JPC"), previously Groome Pöyry Limited, to independently assess the market value of Evergreen's forest assets as at 30 June 1999. The latest valuation equates to an asset backing of $0.86 per undiluted ordinary share:
1 Per annum, over the ten-year period 2005 to 2015.
The JPC valuation discounts projected future pre-tax cash flows by nine percent real, assuming a recovery to trend line log prices by 2005, and zero real log price growth thereafter. The net asset value matrix below tests sensitivity across a range of discount rates and real price growth assumptions. Further valuation information is presented on page 10 (of the printed 1999 annual report).
Australian Stock Exchange Listing Due to the growing interest from Australian investors, the company decided that a secondary listing on the Australian Stock Exchange ("ASX") would raise the company's profile in the wider Australasian market. The company was admitted to the ASX on the 31 May 1999. The ASX code for the ordinary shares is EVF and for the convertible notes is EVFG.
Y2K Issues On the basis of assessments completed to date and compliance plans in process, Evergreen does not expect that the Year 2000 problem will have a material effect on its business operations, and that Evergreen's in-house systems, sub-systems, and third-party supplied software are Year 2000 ready. The company has not sought independent verification or endorsement of its own compliance, compliance programme or contingency planning. Shareholders and investors may enquire further about the company's Year 2000 activities by contacting the company or by viewing the company's Year 2000 Readiness Report at: www.nzse.co.nz.
Internet website This report, previous reports and other relevant material can be accessed on the company's website www.evergreen.co.nz. The website includes a provision for shareholder feedback and provides links to other forestry-related internet sites such as the Wood New Zealand website www.woodnz.co.nz.
Summary There are encouraging signs that the worst of the Asian crisis may be over. In general, New Zealand forest companies have come through the downturn relatively unscathed. At an industry level, good progress is being made in the development of alternative markets for New Zealand radiata products. Evergreen's latest financial performance was creditable in difficult market conditions and this augurs well for the company's future prospects.
Mark S. Bogle
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